Dutch development bank FMO (Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden) has issued its first ever Honduras lempira (HNL) linked note in the off-shore market for a notional amount of US$10m and a maturity period of two years. The notes, which pay a fixed annual coupon of 5.80%, were snapped up by a number of European asset managers.
The HLN-linked notes are swapped to US dollars with the Currency Exchange Fund (TCX), with the intention of facilitating local currency market funding, according to Matthijs Pinxteren, director of FMO's Treasury.
"Foreign exchange rate volatility is frequently one of the greatest risks to the viability of investments in those countries with very thin or non-existent currency markets," said Pinxteren. "Through our partnership with TCX, we are taking the lead in helping to develop the depth and liquidity of these markets by issuing offshore frontier currency notes to fund our activities in places, such as Honduras, where this has often never been done before."
TCX usually hedges the exchange risk of investments in projects in these countries although the company also may need to lower its exposures to individual currencies. By finding investors willing to take frontier market risk through FMO's notes and hedging them, TCX reduces its own risks and creates additional capacity in currency solutions for the lending business of its clients, according to Pinxteren.
The HNL issuance topped a quartet of funding activities in frontier currency notes by FMO's Treasury in April, which included the bank's largest note linked to the Georgian lari (GEL) for a nominal amount of US$32.7m, its third issuance attached to the Myanmar kyatt (MMK) for US$10m and a US$5m issue linked to the Costa Rican colon (CRC).
Bank of America Merrill Lynch was the arranger, structurer and distributor of FMO's Honduras lempira-linked note, while Citibank handled the Georgian lari and Myanmar kyatt issuances and ING enabled the transaction for the Costa Rican colon.
The notes cannot be called, and, according to Pinxteren, in general, FMO issues senior unsecured vanilla currency notes, excluding a call option. "[However] FMO has issued subordinated notes in 2015 including a call option," he said.
FMO is a public-private development bank which was founded in 1970. The bank has investments in more than 85 countries, offering private sector companies and financial institutions in developing countries a variety of financial products. With a committed portfolio of €9.8bn, FMO is one of the larger bilateral private sector development banks globally.
Click the link to view the final terms of the HNL issue.
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